A few weeks ago I did a piece on the
stock market's reaction to the assassination of President
John F. Kennedy on November 22, 1963. In the column
I noted an account from the New York Times on that
day which mentioned that the market had been reacting
adversely to "an imbroglio over soybean oil" before
the event that rocked the nation.
I said I didn't recall what this referred to but thanks
to reader George L., he set me on the right path.
You see, George mentioned that the soybean oil scandal
was really about Tino De Angelis and the Great Salad
Oil Swindle of 1963. I had recalled Tino's name, but
frankly was embarrassed I had forgotten this important
piece of Wall Street History, especially since I once
worked for a firm in the 1980s that profited from
De Angelis grew up in the Bronx, the son of Italian
immigrants. He worked in a meat and fish market as
a youth and while still a teenager was soon managing
some 200 employees. A few years later, De Angelis
recognized there were loopholes in various government
programs, including subsidies for providing meat for
school lunches, as well as a lucrative opportunity
in exporting vegetable shortening to Eastern Europe,
which was still struggling in the wake of World War
Angelis's business boomed as he latched onto the subsidies
while shipping massive amounts of substandard shortening
across the Atlantic, along with taking advantage of
the lunch program to provide spoiled meat products
to the schools. And as Ron Insana describes in his
book "The Message of the Markets:"
his bank account grew fatter, Tino grew too - to a
remarkable 240 pounds that hung heavily on his 5'5"
Angelis then became more and more of a player in the
commodities markets, both in what was then a brisk
trade in vegetable oil and vegetable oil futures,
as well as cotton and soybeans. Hey, I can corner
this stuff, he thought one day, and despite his already
fabulous wealth, Tino did what so many others before
him have, he got greedy. Of course he also turned
out to be a crook and one of the biggest con artists
in market history.
in 1962, De Angelis began to weave a complex web,
buying vast amounts of vegetable oil in both the spot
and futures markets while supposedly storing the product
in a tank farm he had acquired in Bayonne, New Jersey.
[Right across the Hudson River from Wall Street, if
you're not familiar with the area.]
he wasn't really taking delivery of the stuff, he
only pretended to. Instead he filled the tanks with
water, except for the little testing valves at the
top of each one, so that when inspectors came around
they then assumed that the whole tank was loaded with
the oil they found in these tubes. De Angelis could
then take the certifications that he owned all this
veggie oil to get loans, the proceeds of which he
used to buy up all the futures contracts on the product.
loans, or warehouse receipts, were mostly acquired
from a subsidiary of American Express called American
Express Field Warehousing Company. Amex, in turn,
sold the warehouse receipts, thus 'guaranteeing' that
the oil was really in the tankers.
are somewhat differing explanations in the accounts
I read, but essentially Tino was trying to corner
the futures market so that he could sell out at the
top and cover his loans without anyone knowing he
never actually had the stuff in the first place. But
as so often happens in these situations, futures traders
began to sniff out a possible scam before Tino was
planning on getting out and Amex inspectors returned
to Bayonne, only this time they realized the containers
were void of any vegetable oil.
you can imagine how the futures price then collapsed
and on Tuesday, November 19, 1963, De Angelis's Allied
Crude Vegetable Oil Refining Corp. filed for bankruptcy,
at which point investors learned $100s of millions
were unaccounted for in the scheme. De Angelis ended
up in jail, only to reemerge as a figure in a Midwest
cattle scam years later, as George L. told me, which
is similar to Charles Ponzi who duped investors again
after the original scandal in which his name became
synonymous. [Or any number of other con artists in
the history of the world.]
the story doesn't end here. Oh no, not by a long shot.
For you see, De Angelis owed countless $millions to
various banks, brokerage firms, and the aforementioned
Amex subsidiary. Two brokerage firms in particular,
Williston and Beane and Ira Haupt and Co., handled
his speculations in the futures market and both were
now in deep trouble. On Wednesday, November 20, the
New York Stock Exchange suspended the two from operating
on the big board until their true financial status
could be ascertained.
Haupt, for example, had 22,000 customers with $450
million in securities. As John Steele Gordon points
out in his book "The Great Game," many of the issues
were held in 'street name,' "meaning that while owned
by the customers, they were registered in the name
of the firm to facilitate trading or to act as collateral
for margin accounts." In bankruptcy, securities held
in customers' names in those days were quickly returned
to their owners, but those held in street name could
be tied up for months.
other firm, Williston and Beane, had 9,000 customers
and their assets were also suddenly unavailable. When
word got out of the troubles at these two shops, those
at other brokerages got more than a bit antsy and
in some respects an old-fashioned bank run ensued,
though the depth of it is somewhat overstated, by
my reading of the situation.
importantly, the NYSE had a big problem on its hands.
It was under no obligation to bail out the customers
but it needed to protect the franchise and if the
big board failed to take action the SEC would surely
step in, thus eroding the NYSE's power. [A rather
familiar theme these days, I think you'd agree.]
Friday, November 22, Merrill Lynch offered to take
over Williston and Beane (which it would later do),
while capital from other sources allowed the firm
to reopen at noon that day. But Ira Haupt was in more
serious trouble and a meeting was called at the exchange
to figure out the next step. Then shortly after 1:30
PM Eastern Time the news hit that President Kennedy
had been shot. At 2:07 PM the NYSE shut down, with
the Dow Jones off 21 points to 711.49.
the weekend, as the nation mourned, the exchange was
in discussions over the fate of Ira Haupt and the
result was liquidation, with exchange members assessed
$12 million to make the clients of the brokerage whole
while the banks that were owed money deferred receipt
of same. A crisis had been averted and when the market
reopened on Tuesday, November 26, stocks staged their
largest one-day rally in history in point terms on
the Dow, up 32, not just because there had been an
orderly transition of power in Washington, but also
because the NYSE for the first time had assumed responsibility
for a member firm's failure.
its part, American Express also came through, making
good on its obligations with its warehouse subsidiary
and the vegetable oil receipts.]
story of De Angelis and the subsequent problems with
Williston and Ira Haupt were really just the tip of
the iceberg for the decade of the 60s. Wall Street
was drowning in paper as back office operations couldn't
keep up with the increase in trading volume. [This
was long before automation of most of the key functions.]
Over 150 brokerage firms ended up failing during this
time, whereas in the previous 25 years only one NYSE
member outfit had been forced to close its doors due
to insolvency. [Charles R. Geisst / "Wall Street:
A History"] John Steele Gordon estimates that in 1968,
some $4.1 billion in securities could not be accounted
for at all due to inefficiency and simple carelessness.
led to a less than stellar equity market in the late
60s, a situation not helped by waves of customers
failing to meet margin calls. Accounts themselves
were not insured in those days and even though the
NYSE had adopted a special reserve to meet emergencies,
as a result of the De Angelis-led collapse, the reserve
itself was soon overwhelmed.
remedy the situation, in 1971 the Securities Investor
Protection Corporation (SIPC) was created to insure
against fraud or mishandling of securities.
now you know...the rest of the story.
for one thing. The accounts I read would have you
believe that the stock market was collapsing in the
days leading up to JFK's assassination because the
Street was so overwhelmed with the De Angelis scam.
But I can assure you that in looking at the actual
closing prices, as I also listed in the earlier piece,
this was not the case. The Dow Jones moved all of
about 2% in the days leading up to Tino's bankruptcy
and even that Friday, as rumors were whipping around
about the stability of Ira Haupt and Company, the
market was actually up a bit until the news from Dallas
hit the wires.
Street: A History" Charles R. Geisst
"The Great Game" John Steele Gordon
"The Message of the Markets" Ron Insana
Christmas and Happy Chanukah, friends. We'll return
on January 2, 2004, with what might be a fairly brief
piece. It's the holidays, you understand.
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